Investing with little money Investing with little money

With these simple tips, we show you how you can balance life and retirement provision despite a tight budget and why it's worthwhile even with small amounts.

You can make provisions even on a tight budget.

1. Start as early as possible

It’s particularly worthwhile to start as early as possible if you have little money to spare, because time is your friend. The more time you have available, the more scope you’ll have to build up reserves, as your money will work for you for longer. 

It doesn’t matter whether you have CHF 1, CHF 50, CHF 100 or more left per month. If you start saving and stick with it, you’ll fare better than if you hold off in the hope of maybe having more money to put aside in the future. The best approach is to set up a standing order. That way, you won’t even notice that you’re saving, and you won’t have to worry about it every month. 

By the way, you can start saving with frankly if you are 18 years old, live in Switzerland and own a Swiss mobile phone number. This way, you can build up substantial reserves even with small amounts.

Assumptions for the chart: Equity component 75%, hypothetical return per year 3.9% (net after costs). Securities savings may fluctuate, the hypothetical return cannot be guaranteed, and tax effects are not included in this forecast.

2. Set feasible goals and stick to them

When saving for retirement, you need above all to make regular payments. It’s just like keeping fit. If your goal is too high, your motivation will drop or you won’t start at all.

Research has shown that motivation and habit play a decisive role in dealing with money. Here’s how it might work:

  • Set yourself realistic goals that fit into your budget, no matter how small the amount at the beginning.
  • Be pleased about small successes, e.g. if you’ve made it for three months. That way, saving for retirement will become a normal part of your life.
  • Once you’ve laid the groundwork, this will give you the motivation to gradually increase the small amounts

3. Draw up a budget and get rid of 
unnecessary drains on your finances

It’s important to draw up a budget and get rid of unnecessary drains on your finances, especially if you don’t have much money to spare.

Budgets don’t have to be complicated. Good templates are available, for example, from budget advisory services or in your bank’s eBanking (e.g. the ZKB financial assistant). The aim of your budget is to give you an overview and to identify savings opportunities that can then feed into your pension.

What are the most common drains on your finances?

  • Short-term debts, e.g. credit cards or overdraft fees, purchases on instalments, reminder fees and fees for the non-payment or late payment of invoices.
  • Online stores can easily tempt you to buy things you don’t really need (especially if you can pay credit card).
  • Mobile phones, e.g. unfavourable rates, minor expenses such as in-app purchases that build up over time, roaming costs and call charges.
  • Subscriptions that are not needed or that get forgotten.
  • Things that you need once only or very rarely and could borrow more cheaply.

Once you’ve got rid of unnecessary costs, you can budget directly how much you want to allocate to your pension. That way, you make sure that you don’t always have to specifically set money aside for it.

How can I use the taxes you save to immediately increase your pension amount and thus benefit twice over?

Thanks to your pillar 3a, you save tax every year, as you can deduct your deposits in full from your taxable income up to the maximum contribution of CHF 7056 per year.

Tax savings with CHF 50,000 income*

Without pillar 3a:
you pay CHF 5,228 in tax

With pillar 3a payments of CHF 100 per month:
Your tax savings: CHF 227

With pillar 3a payments of CHF 588 per month (maximum amount CHF 7056):
Your tax savings: CHF 1,305

*ZKB tax calculator, income CHF 50,000, single, no children, City of Zurich, Reformed Church

Tax calculator - Swiccanto

If you know in advance how much tax you’ll save with your pillar 3a in the same year, you can pay your tax savings into your pillar 3a up to a maximum of CHF 7056 and thus benefit twice over. In the example mentioned above, the person could invest the CHF 228 in tax savings in their pillar 3a at the beginning of the next year, as well as saving CHF 100 per month, and thus increase their contribution without denting their budget.

4. Save costs and fees

If your pillar 3a is in securities, the fees, including product costs, can significantly reduce your returns. Even if it takes some time, it’s worth comparing the different providers and choosing the most cost-effective solution that already includes the product costs. That way you’ll avoid unpleasant surprises.

5. Stay on the ball with a standing order

The easiest way to achieve your retirement savings goal is to set up a monthly standing order for your pillar 3a. Specify your savings amount and have it transferred directly from your savings account at the end of the month.

Making backdated contributions into your pillar 3a

Making backdated contributions into your pillar 3a

Unlike with a pension fund it is not yet possible to make backdated contributions into a pillar 3a account, but this could soon change. A motion stipulates that people who have not paid the maximum permitted amount into their pillar 3a should be able to make up this shortfall in contributions retrospectively for up to 10 years. This is already possible with a pension fund. People who started their working life late or took career breaks can fill this gap with backdated contributions, and therefore top up their pension fund capital during their working life. The maximum permitted amount of backdated pension contributions is given on the pension fund statement.

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